Entrepreneurs, Don’t Forget to Secure Your IP and Trade Secrets

Recently I had a discussion with a young entrepreneur who had been diligently working towards that day when he would seek seed-stage funding for his opportunity.

His idea was actually gang-busters in my opinion. He had an idea for a new software application (then partially developed) and though I had no particular experience in the industry that would use his application; I must admit it sounded really good.

Normally, I would not get too excited about just an idea, but this idea was clearly addressing a big problem in the target industry. He was very excited about the prospects as he should be–His passion and intensity was very high. He explained how he would market the application to retailers and it became clear that the application was simply the beginning. He had plans to monetize the application with retailers who would pay a small fee (say 3%) for each sale transacted through his website portal. The potential revenue and profit was high as the end market was measured in tens of billions of dollars.

When I asked how his idea, application, and website would defend itself from other entrepreneurs and competitors, he became speechless and drifted back to talking about the market. This was a red flag for me. My expectation would have been to hear something about IP and trade secret protections, first-mover advantage, etc. I burrowed in again: Have you secured the IP for the idea and invention? No answer.

Now, my question becomes pointed and directly asked. Do you have a patent or patent application for your invention? In this case, his invention would have revolved around a method of doing business that depended upon three key pieces of technology, each of which was either not an invention or already public. That another invention can depend upon a unique assembly of constituent ideas, process, or parts is not new, of course, but when applied to a market in a unique and innovative way, the idea was non-obvious and had the potential to become a patented invention. His answer: NO. He had neither a patent nor patent applications accomplished.

Immediately, no heart sank. Because, I knew he would eventually compete with others who had the money to build and brand a competitive business. His potential for long-term success was significantly eroded by the lack of secured IP. Importantly, knowing that the amount of money required to get into business was not small (though not large either), the likelihood that a professional investor would become involved was small if not non-existent.

##TRENDING##

I left the conversation with a recommendation that he immediately file a provisional patent application, review existing patents and the environment (via the Internet), and file additional provisional patents that would protect his idea/invention. After consulting with a patent attorney who would do an independent review of the patent landscape he would then have an idea of whether or not his invention had good prospects for eventually being granted a patent. My own guess was that he had a good chance of getting a patent.

But, the lesson is clear for entrepreneurs; that is, be sure to file one or more provisional patent applications at the earliest stages and vigilantly research the key aspects of the invention and potential markets so that the future company’s IP is both secured and robust. The expected IP becomes a barrier to entry to other future competitors and creates value that professional investors will appreciate. This may seem like a no-brainer to many experienced technology entrepreneurs but the importance is not obvious to all would-be entrepreneurs.